When Wall Street becomes a landlord

The stronger-than-expected housing recovery -- a 20% rebound since 2010 -- owes a lot to the investors who swept into recession-ravaged cities and scooped up distressed homes.

Nowhere has that been truer than in the suburbs ringing Atlanta, where rampant overbuilding and economic woes produced a flood of foreclosures.

At the same time, the local rental market couldn't absorb all the displaced owners. That combination proved irresistible to mom-and-pop investors, whose all-cash purchases stabilized the market: Atlanta home prices rebounded from a 12.7% decline in 2009 to flat in 2010.

Related: Cities where the real estate deals are

Then Wall Street came to town. This second wave of housing investors is spending billions to flip foreclosures into single-family rentals. In January one in every four homes sold in Atlanta went to a large investor, four times the national average, says RealtyTrac.

"They're coming from all over, even out of the country," says Atlanta agent and property manager Scott Goeber.

In June 2012 the Atlanta office of real estate manager Waypoint Homes was "me and my cellphone," says regional director David Zanaty. By last fall he had hired 50 people and bought 600 homes, and hoped to own 1,500 by March.

Large investors are swarming local markets. Real estate powerhouse Blackstone has spent $8 billion to buy 43,000 homes nationwide. American Homes 4 Rent has spent $3.5 billion on 21,700 homes.

Now these buying sprees are being converted to investments.

Since December 2012, four single-family home real estate investment trusts, similar to REITs that own apartment buildings or shopping centers, have opened up to individual investors. American Homes 4 Rent's (AMH) is the largest; most recently Waypoint merged with the home-rental division of Starwood Property to form Starwood Waypoint Residential Trust (SWAY), a REIT that owns close to 5,800 homes.

Plus, a new breed of bonds, which bundle rents from single-family homes, is being peddled to institutional investors, such as pension managers or mutual funds. Last October, Blackstone rolled out a $479 million bond backed by 3,207 homes in five states. Deutsche Bank estimates that another $5 billion in home rental bonds will hit the market this year.

So far investors have not been enthusiastic. Some of Blackstone's bonds are selling below the offer price, and most of the REITs have underperformed their index. The business model is too new, says Brad Thomas, editor of iREIT Investor.

The biggest firms expect to generate 5% to 7% a year in return from rents, according to a Bank of America report. But that hinges on keeping down the cost of maintaining far-flung homes.

"If a toilet breaks, you've got to send someone to fix it," Thomas says. "It's difficult to do that efficiently. In an apartment complex, a property manager can walk the building."

Related: Dreary outlook for formerly hot housing markets

And REIT investors shouldn't count on big price gains. "It's unproven how their asset value will grow in a more normal market," says Forward Real Estate Long/Short manager Ian Goltra.

Plus, the REITs have been plowing capital into buying homes, not paying big dividends. And yield is a big reason to own REITs, notes Goltra. Top apartment REITs currently pay more than 4%. The highest available yield in a single-family rental REIT is 1.2%.

"It's early days," says Goltra. "For now, they're too risky." 

Ready to renovate? Here's your first move

When the real estate market was in the dumps, snagging a great contractor was a simple task. With few people remodeling, no project was too small for hungry pros, many of whom were bidding at 10% to 40% below their boom-time rates.

Those days are gone. Remodeling spending is now up 30% from its low point, and single-family construction spending has doubled. Depending on where you live, a project that cost $50,000 in 2010 might now come in at $60,000 to $70,000.

"Materials costs are up, much of the skilled labor pool has jumped to the oil and gas industry, and contractors' phones are ringing," says Bernard Markstein, U.S. chief economist at Reed Construction Data.

To get the best help, you'll need to be strategic.

Start with referrals. Begin by polling friends and tradesmen, and tell the contractor who pointed you in his direction.

Using a referral will do more than just ease your mind -- it will also make you a priority for the pro, who wants to keep his clients and subcontractors happy.

Related: 4 tips from a serial home remodeler

Don't be vague. When you reach out, show that you've put careful thought into the project by expressing a clear vision of what you want to accomplish and a sense of what you can spend.

"Bidding on a job takes about a dozen hours," says Boston renovation consultant Bruce Irving. "He's not going to bother unless he thinks you're serious."

Get his opinion. When a contractor comes to see the job, don't jump right into discussing price. First ask for his input on the plan and on any initial sketches your architect has put together. This shows you value his knowledge and don't just see him as a nail banger.

Plus, his answers will show you how he thinks -- and whether you want to hire him. Is he channeling what you want? Great. But if he suggests lazy solutions or pricey add-ons, move on.

Now negotiate. Solicit bids from three or more contractors. Be sure to stoke competition by letting them know that you're gathering multiple offers. Skip any bids that are wildly high or low.

Related: Make your old house look new again

Should your first choice still be over your budget, haggling is risky: He'll probably either walk or cut corners on the project. Instead, let him know how much he's over, and ask for some suggestions on how he might tweak the job to lower the price with minimal impact, says UCLA law professor Russell Korobkin, a negotiation specialist.

Remember to hold out a contingency of 10% to 20%, since many remodels mushroom over the course of the project.

Be flexible. This is also the time to nail down scheduling. Ask him for approximate start and end dates. But don't press too hard. For a top contractor, at a fair price, you may to have to wait a bit. 

Vacation home market heats up

More Americans felt rich enough to invest in vacation homes last year as the economy continued its recovery.

Annual sales jumped nearly 30% to 717,000 homes, according to the National Association of Realtors. Vacation home sales represented 13% of the total market, their highest share since 2006.

The median price rose to $168,700, up 12.5% from a year earlier.

Related: Cities where the real estate deals are

The sales were spurred by a strong stock market, according to Lawrence Yun, chief economist for the National Association of Realtors. The S&P 500 piled up a whopping 30% return in 2013, its best performance in 16 years. That provided investors with the funds and the confidence to purchase recreational property.

Some of the buys were made by speculators looking for quick profits. About 5% of buyers turned the properties over before the year was out and another planned to sell within 12 months of purchase.

Related: Buy vs. rent -- What you'll pay in 10 big cities

The main reason cited for buying was to use the homes as family vacation retreats. But 31% of buyers also said they planned to eventually use the homes as primary residences, often after they retire.

More than a quarter of buyers said the purchase was to take advantage of good deals or to diversify their assets. Almost as many planned to rent to others, at least part of the year.

Calculator: Was my home a good investment?

NAR's report also covered purchases of second homes for investment purposes. Those sales fell 8.5% year-over-year to 1.1 million.

"Investment buyers slowed their purchasing in 2013 because prices were rising quickly," said Yun, who also cited the drop in the number of foreclosures available for the decline. 

Housing heats up in booming growth cities

NEW YORK (Money Magazine)

To sort out what you can expect in real estate this year, MONEY zeroed in on four markets: upscale neighborhoods, new investor favorites, booming growth cities, and once-busy areas that have quieted down. Whether your local real estate market is heating up or cooling off, here's what you need to know about buying, selling or renovating your home.

BOOMING GROWTH CITIES

Areas with strong job growth and swelling populations should post big gains this year, says CoreLogic chief economist David Stiff. This may sound like common sense, but it hasn't always been the case: In 2013 the largest price increases were in places that attracted investor buyers, who were drawn by good deals, not good jobs.

For sellers living near major employment hubs or in mushrooming technology hotspots, 2014 is shaping up to be a good year. Buyers, though, will face higher prices and fewer available homes, due in part to competition from relocating workers. In job-creation juggernaut Fort Worth, for instance, there's now just a three-month supply of homes on the market (in January the U.S. average was nearly five months).

How you'll know: Check local stats at bls.gov/eag. Look for upward trends in the number of new jobs and a falling unemployment rate that's lower than the national average (6.6% in January). To see if your town is headed the way of Fort Worth, compare your area's "median age of inventory" numbers on Realtor.com's Trends page with the U.S. average (115 days in January). A lower number is a sign of a tight market.

BUYERS

Be a creative shopper. Sign up for immediate new-listing alerts from your multiple-listing service, realtor, and sites like Zillow, which includes for-sale-by-owner houses that may not show up elsewhere. Zillow also has Make Me Move listings: homes that aren't currently for sale, but where owners have posted a price they'd consider.

Related: 10 fastest growing cities

Can you afford a premium of 10% to 15% over an existing house? You may also be able to dodge competition by shopping for a new home. A caveat: Most builders are postponing construction until they have a buyer, so you won't be able to move in for at least four to six months, says Stephen Melman of the National Association of Home Builders.

Be mindful of rates. The average interest rate on a 30-year fixed loan is predicted to climb from the current 4.4% to 5.3% by the 2015 spring buying season, according to Freddie Mac. For a $250,000 loan, that means that a borrower who waits would pay $136 more per month and an additional $49,090 in interest over the life of the loan. Will you need a big loan? Better to act soon before rates tick up.

Calculator: How much house can you afford?

Go beyond a pre-approval. Stand out by collecting all your paperwork and going through underwriting before you shop. "That's almost as good as cash," says Betty Taisch of the San Francisco Association of Realtors. After you make an offer, ask your lender to call the listing agent to confirm you're ready to go.

Don't give up if you lose a bidding war. Deals can fall apart, so check in with the listing agent weekly until the sale closes. "It is a great way to sneak in with little competition," says Taisch.

SELLERS

Don't get greedy. Better to price low and receive multiple bids than aim too high and have to cut. Use the past three months of sales data to find a good number.

Multiple bids? To increase chances of a smooth sale, you or your listing agent should call each buyer's lender to verify that he has been vetted and can move quickly. With inventory tight, you may also want to negotiate to stay in the home for a month or two until you've found a new place.

OWNERS

Price a remodel. Like your neighborhood but ready for an upgrade? Look into renovating before you consider a move. Get bids from at least three contractors to assess the cost of improving your current home. Then compare that figure with the price of relocating. Selling a $350,000 home, for instance, you'd pay $21,000 (or 6%) to your agent -- and that's before closing and moving costs. For that, you could redo a master bath or upgrade a kitchen.

More Real Estate Guide 2014

Upscale neighborhoods 
New investor favorites 
Once-hot housing markets, now not 
Booming growth cities 

Dreary outlook for formerly hot housing markets

Las Vegas, the poster city for last year's recovery has finally seen price growth cool.

NEW YORK (Money Magazine)

To sort out what you can expect in real estate this year, MONEY zeroed in on four markets: upscale neighborhoods, new investor favorites, booming growth cities, and once-busy areas that have quieted down. Whether your local real estate market is heating up or cooling off, here's what you need to know about buying, selling or renovating your home.

ONCE-HOT HOUSING MARKETS, NOW NOT

During the past couple of years investors swooped in to snatch up deals in cities clobbered by the crash, driving up prices. But with that low-hanging fruit gone, these markets are now cooling off. In 2014 they should see less impressive price hikes and far more homes for sale. And if rates rise, these areas could get even flabbier, since last year's price jumps put many homes out of reach for locals.

Related: 10 fastest growing cities

How you'll know: Your first clue is the amount that area home values increased in 2013. Look at Realtor.com's Trends page: Anything over 15% is in the pocket. A big jump in the number of homes for sale is another giveaway. (Think Sacramento, which saw December available listings spike 58% from a year earlier.) Check the page's Total Listings column to see whether your area has had a similar increase.

BUYERS

Take your time. While most of these areas aren't quite a buyer's market, you'll have more choices and power than last year, so don't rush into a place you don't love.

Ask for extras. You may want to build in a clause that says your offer is contingent on your ability to get financing or to sell your current home.

Bid low. When markets start to slow down, sellers get nervous -- and pliable, says Los Angeles agent Connor Maclvor. Ask your realtor to send you listings where the price has been cut. Those sellers are the most eager, says Maclvor; set your bid at 8% to 10% under asking.

SELLERS

Court bargain hunters. A year ago Phoenix sellers could price above similar listings and still get 10 bids in the first week, says agent Greg Markov: "Not anymore." Now you want your house to look like a deal, he says.

Check current asking prices for comparable homes, then price your house near the bottom of the range. Two weeks and still no offer? Cut it by 5%.

Calculator: Was my home a good investment?

Max out your listing. Choose an agent that offers pro photos. Homes that have them sell faster and for up to 3% more, according to Redfin. Go beyond Realtor.com, Trulia, and Zillow by posting your house on Craigslist. Make sure that your agent is promoting it on Facebook, Twitter, and Pinterest.

Creating a video for your listing (or to post on YouTube) is another option; 12% of sellers tried it last year, says NAR. If you go that route, walk the camera through the home, since buyers want to see the layout, says Princeton, N.J., broker Henderson.

First impressions count. With more competition for buyers, the focus on curb appeal and staging is back. Be sure your front yard looks neat, pressure-clean the roof, and repaint your front door. Inside, eliminate all clutter. A professional stager can suggest paint colors and lighting and furniture arrangements that will help your place look its best; a two-hour consultation typically costs $150 to $400, according to contractor referral site Fixr.com.

OWNERS

Don't panic. This isn't another bust: Your home will still appreciate. In fact, CoreLogic predicts that prices in last year's hottest 20 markets will rise at an average annual rate of 3.7% through 2018, vs. 3.1% nationwide. Keep those numbers in mind if you're thinking about remodeling. Smaller projects that bring your home in line with your neighbors' will pay off, but you're unlikely to see big enough gains to justify a massive renovation.

More Real Estate Guide 2014

Upscale neighborhoods 
New investor favorites 
Once-hot housing markets, now not 
Booming growth cities 

Homebuyers getting priced out in cities across U.S.

NEW YORK (CNNMoney)

In big cities across the country, home buyers are growing increasingly frustrated as rising home prices and stiff competition shut them out of the market.

In cities like Las Vegas, San Francisco, San Diego, prices have climbed by as much as 20% or more in the past year, well above the national average of 13%, according to Case Shiller.

Plus mortgage rates are up by nearly a point to 4.3%, so borrowers today are paying 25% more than they would have a year ago.

Related: 'I've been priced out of my housing market'

Even those who have no problem affording a home on their own are having a hard time closing the deal.

Helen Cittadino bid $600,000 in cash on an 890 square-foot two-bedroom condo in Palo Alto, Calif. -- a $20,000 premium to the seller's $580,000 listing price. And she was still outmatched by a higher all-cash offer.

"What's crazy is how many people here are capable of putting in all-cash offers," said Cittadino.

Nationwide, about 35% of all offers were in cash in February, a nearly 30% increase from a year earlier, according to RealtyTrac.

Related: Buy vs. rent: What you'll pay in 10 biggest cities

In the Bay Area, the cash is coming from deep-pocketed tech workers. In New York, Wall Street workers, flush with bonus checks, and foreign buyers looking to park assets, are paying with cash. Meanwhile, South Americans have been buying up real estate in South Florida as a safe haven for their money. In February, more than 71% of sales in the Miami area were all-cash deals.

All of these cash buyers are picking up what little housing there is available in these hot markets. New home construction is still well below normal levels, which has kept inventory tight.

Making matters worse: many prospective sellers are waiting to put their homes on the market for fear they won't be able to buy a home to move into.

Related: Cost of living -- how far will my salary go in another city?

As housing becomes more expensive some worrisome trends that occurred during the bubble years are re-emerging, said Stan Humphries, chief economist for Zillow. These include a greater reliance on non-traditional financing, like low-downpayment loans and adjustable-rate mortgages, and a greater pressure to move further away from urban job centers in order to find affordable housing.

Jeff Cuthbertson and his wife have bid on more than a dozen homes in Austin, Texas over the past several years and have been outbid on every one.

"We have been priced out of the market -- literally," he said. "Now we are planning a move, probably to North Carolina or Tennessee." 

Vacation home market heats up

NEW YORK (CNNMoney)

More Americans felt rich enough to invest in vacation homes last year as the economy continued its recovery.

Annual sales jumped nearly 30% to 717,000 homes, according to the National Association of Realtors. Vacation home sales represented 13% of the total market, their highest share since 2006.

The median price rose to $168,700, up 12.5% from a year earlier.

Related: Cities where the real estate deals are

The sales were spurred by a strong stock market, according to Lawrence Yun, chief economist for the National Association of Realtors. The S&P 500 piled up a whopping 30% return in 2013, its best performance in 16 years. That provided investors with the funds and the confidence to purchase recreational property.

Some of the buys were made by speculators looking for quick profits. About 5% of buyers turned the properties over before the year was out and another planned to sell within 12 months of purchase.

Related: Buy vs. rent -- What you'll pay in 10 big cities

The main reason cited for buying was to use the homes as family vacation retreats. But 31% of buyers also said they planned to eventually use the homes as primary residences, often after they retire.

More than a quarter of buyers said the purchase was to take advantage of good deals or to diversify their assets. Almost as many planned to rent to others, at least part of the year.

Calculator: Was my home a good investment?

NAR's report also covered purchases of second homes for investment purposes. Those sales fell 8.5% year-over-year to 1.1 million.

"Investment buyers slowed their purchasing in 2013 because prices were rising quickly," said Yun, who also cited the drop in the number of foreclosures available for the decline. 

The sunny outlook for housing in upscale neighborhoods

In Denver, the Mile High City, sales of homes prices at $500,000 or more spiked 65% this January vs. last.

To sort out what you can expect in real estate this year, MONEY zeroed in on four markets: upscale neighborhoods, new investor favorites, booming growth cities, and once-busy areas that have quieted down. Whether your local real estate market is heating up or cooling off, here's what you need to know about buying, selling or renovating your home.

UPSCALE NEIGHBORHOODS

Do you live in one of the tonier areas of your city? Here's good news: It should be easier to sell this year.

With jumbo rates now closer to those of conventional loans, and buyers more confident, sales volume for expensive houses is on the upswing. In January the number of U.S. homes selling for $500,000 to $750,000 picked up 15% vs. a year earlier, compared with a 6% drop for $100,000 to $250,000 homes, according to the National Association of Realtors.

The time it takes to sell is also falling in many areas. In Denver, for one, $500,000 homes were on the market 12% fewer days in January of this year than in the same period in 2013.

Related: Top 10 most affordable small cities

Prices for high-end homes rose less than those on the low end last year, but that's likely to change soon, says CoreLogic economist Sam Khater. A jump in sales is typically followed by price increases, he says.

How you'll know: To find out if your home is in the top tier, check Zillow's Local Info page for your town. There you'll find the median home values for the low, middle, and top price tiers in your market. Then, gauge the strength of your specific tier by asking your agent for the inventory and days-on-market stats for homes in your range.

BUYERS

Time it right. Want a more expensive home? Buy now before prices climb. However, if you live in a pricey house but are looking to downsize to something less expensive, it may be worth waiting for your current home to appreciate.

Watch: What's your dream home?

Look at jumbos. Will you need a large mortgage (typically more than $417,000)? The premium over what you'd pay for a smaller loan, which grew as wide as two full percentage points during the bust, has shrunk to next to nothing. Today rates on jumbos average 4.43%, vs. 4.42% for smaller loans, thanks in part to growing competition among banks. Big banks often offer the best rates and options on these types of loans, says Keith Gumbinger of mortgage publisher HSH.com.

Don't dismiss ARMs. A five-year adjustable rate for a jumbo averages 2.93%. While rising rates are a very real risk, ARMs at least deserve a look if you're taking a big loan, says Gumbinger.

Caluculator: How much house can you afford?

On a $650,000 loan, you'd save $47,775 on interest during the first five years (vs. a 30-year fixed), and gain an extra $14,745 of equity. If you're planning to sell soon after rates reset or are confident you can handle a spike in your payment at the end of the adjustable period, you may decide the gamble is worth it.

Buy for the future. Nearly 25% of owners regret the size of the home they picked, according to a Trulia study. With prices expected to climb, high-end homes are likely to be more affordable than they will be in the future, so think about how much space you'll need in the coming years and buy appropriately.

Don't go it alone. A recent study found that buyers of homes priced at more than $300,000 are more likely to try to negotiate the deal themselves than buyers of more moderately priced properties, says co-author Bennie Waller, professor of finance and real estate at Longwood University. It doesn't end well: The DIYers end up paying an average of 9% more than those who use their own agent.

SELLERS

Price carefully. With sales of higher-end properties picking up, homes are increasingly "stigmatized if they stay on the market too long," says Judson Henderson, a broker in Princeton, N.J.

Overprice, and your place could be the one with the black mark. If you're unsure, pay the $500 or so for an appraisal. Also, if your home is older than 20 years, get an inspection to make sure your structure is sound, and your HVAC, plumbing, and electrical systems function smoothly. Fix whatever's on the fritz. "You don't want people feeling like the house is a project," says Henderson.

Make your listing tech-friendly. Most shoppers, and particularly those in the market for upscale houses, will be looking at your home on phones and tablets, says Amy Bohutinsky, chief marketing officer at Zillow. Photos on these gadgets need a higher resolution than what's required by a desktop. Check your listing on a mobile device to make sure it looks great. Some buyers may look at photos of your home on Google, so you should do the same (type your address into the map search, then click on the Street View tab). If the photo is outdated or taken in winter, note that in your listing.

Highlight the right features. According to a study by the National Association of Home Builders, buyers who expect to pay at least $500,000 today put warming drawers, wine fridges, and outdoor kitchens high on their wish lists. If your home has these or other unique selling points, mention them in your listing.

OWNERS

Renovate sooner, not later. Don't let dated features drag down the value of your home. Owners thinking about remodeling have good reason to act now. Quality contractors, already busier than they have been in recent years, are likely to get even tougher to snag. Then there's the issue of rising rates, which would push up the cost of new home-equity loans and most lines of credit.

More Real Estate Guide 2014:

Upscale neighborhoods 
New investor favorites 
Once-hot housing markets, now not 
Booming growth cities